The Business of Baseball

The Business of Baseball
We have finally reached the last day of Championship Play for the 2010 MLB season. Still to be determined: the American League East champion, the National League West Champion, and the National League Wild Card. We won’t know who’s who until dinner time here on the East Coast, and we may not know the answers to the National League questions until Tuesday, which would be very interesting and add to the excitement of the post-season.

Since we don’t know what’s going to happen on the field, let’s take time to look at the Business of Baseball, how MLB makes its money, how the teams prosper at the bottom-line (and I believe they all do). Today we’re going to talk about Revenues, Franchise Valuations, Fan Cost Indices, and not Batting Titles or Earned Run Average crowns. I think it’s really quite fascinating, in part because so much of the information isn’t available to the public.

From the time that the Supreme Court granted Major League Baseball an anti-trust exemption in 1922, club owners, quite legally, have kept their ledgers closely held. After the Curt Flood case in 1969 had established that the reserve clause (which bound players to specific teams) was a legitimate subject for collective bargaining, and arbitrator Peter Seitz’ decision in 1975 opened the path to free agency for players, MLB remains the only sport to have the exemption from the Sherman Anti-Trust Act of 1891 intact.

So gathering real information on teams’ incomes and expenses must be done by dedicated researchers gathering indirect data and putting it into sensible forms. Every April at the start of the season, Forbes magazine publishes its valuations of the 30 teams, sometimes with actual data to work with, e.g., if the team has changed hands, if commitments for stadium finances are known, the usually published payroll and salary figures, even what tickets, parking, refreshments etc. cost fans (although not all teams are even up-front about that!).

MLB ranks just behind the NFL in total revenues which is reflected in team valuations. In many respects, the NFL’s finances are different, they have a salary cap, media revenue is much more national than local, and in general the NFL is more “socialistic” where incomes are spread much more evenly among the teams. As a one-game-a-week attraction, the NFL has always been more of a network TV-based sport, while with 81 home games every season, MLB has always been more dependent on what’s called “the ballpark experience.” In other words, an NFL team that averages 9 home games (counting one exhibition game that season-ticket holders are expected to buy), and a 65,000 seat stadium has around 585,000 tickets to sell; an MLB team that plays 81 games in a park seating 45,000 fans has 3,645,000 tickets to sell. MLB’s national TV contracts with Fox, TBS and ESPN are a fraction of what the NFL gets from Fox, CBS, NBC and ESPN/ABC.

We will continue this discussion next week and throughout the post- and off-season. We’ll get into the numbers and talk about some long-range impacts for the National Pastime. We’ll be referring to the links below, too.

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